UDIA State of The Land 2019 National Residential Greenfield and Apartment Market Study Bohem by Starfish Developments

2019 STATE OF THE LAND RESEARCH PARTNERS

Front cover images: Elwood House by Piccolo Liv Apartments by DHA No. 1 Lacey by Cornerstone Property Group Brighton Lakes by Mirvac Warralily by Armstrong Creek Development Corporation Welcome to 2019 annual State of the Land report

The Urban Development Institute of Australia (UDIA) State of the Land report has evolved over the last decade to become the most comprehensive annual overview of the Australia’s capital city new home markets.

New residential construction is a key component of the Australian economy with circa $63B worth of work undertaken across the nation in 2017/18. The State of the Land report delves behind the macro economic statistics to provide ‘ground-up’ insights into the annual performance of the new home development sector across our growing capital cities.

Prepared by the UDIA National Secretariat in collaboration with each UDIA state office and our State of the Land Research Partners, Research4 and CoreLogic, the report provides an important annual industry health check and outlook for the year ahead.

For the fifth year running the National Land Survey (NLS) undertaken by Research4 provides the core market intelligence underpinning the report’s greenfield analysis. The NLS provides unique insights into the market performance of over 1,000 new residential land estates across the nation. UDIA is delighted to showcase the Research4 NLS data and analysis which once again highlights the fundamentally important role of the greenfield sector for housing our growing population.

This year we have once again partnered with CoreLogic who have provided the core multi-unit market intelligence featured in the report. CoreLogic’s customised multi-unit data allows unique insights into the nation’s dynamic apartment and infill markets which continue to evolve across the nation.

As our urban regions continue to mature and policy settings continue to emphasize urban renewal and urban consolidation, the importance of multi-unit development will only increase across Australia’s capital city housing markets.

The new residential housing estates emerging in greenfield land release areas and the apartment and medium density projects being delivered within established areas are where public policy hits the ground on issues such as housing affordability, population, city structure, economic growth, land release, infrastructure and energy use.

On behalf of UDIA - Australia’s undisputed peak body representing the urban development industry - it is my pleasure to commend the 2019 State of the Land report to you.

Darren Cooper

UDIA National President

Banksia by MAB Corporation Liv Apartments by Defence Housing Australia

CONTENTS National Residential Market 7 Overview South East Queensland 24 Sydney 32 Melbourne 40 Adelaide 50 Perth 58 ACT 66 Annual Change

5 6 NATIONAL RESIDENTIAL MARKET OVERVIEW

Australia’s residential developers experienced a output and was 24% below the eight-year average. mixed, and in large part challenging 2018 due to the 66% of Perth’s residential completions came from cooling of housing market conditions. Despite the greenfield estates in 2018 which was the highest unfolding market correction (focused on the eastern proportion recorded across the capital cities, with seaboard), completions of new homes in greenfield the national average sitting at 44%. land estates and in multi-unit developments in infill locations across the capital cities remained close Adelaide produced a total of 3,730 new dwellings in to record levels. Strong production throughout the 2018 which reflected a slight 1.5% decline on 2017 2018 calendar year reflects supply flowing from the output, but this was 14% higher than the eight-year well-stocked construction pipeline assembled in the average. Exactly 50% of new home completions years prior. were recorded from greenfield land estates.

A combined total of approximately 128,000 new The ACT also recorded a lower supply quantum homes were completed in greenfield release in 2018 with a combined total of 3,165 greenfield areas and urban infill locations across the major homes and multi-unit completions. This volume of capital cities in 2018. While this represented a completions was 42% lower than 2017 and 19% 4% reduction on the 2017 supply quantum it still lower than the eight-year average – driven by a represented a remarkable increase of 92% on the reduced output from greenfield estates. 2013 output and was 34% higher than the eight- year average. Combined Capital City New Residential Market Supply Of the more than 385,000 new dwellings delivered over the last three years (2015-2018) almost 60% have been multi-unit stock. At a combined capital city scale it appears that apartments, townhouses and other medium density dwellings are now established as the predominant new housing typology.

Melbourne continues to provide the largest volume of year-on-year housing across the capital cities with a total of 45,600 new dwellings completed in 2018. While this was a 14% reduction on 2017 output it remains 31% higher than the eight-year combined supply average. Melbourne’s total market output accounted for 36% of the combined capital city residential production achieved in 2018. *UDIA estimates Source: CoreLogic, Research4 Sydney achieved a total supply output of 43,500 which represented a significant lift of 19% from Capital City New Residential Market 2017, which was principally due to heightened Supply, 2018 levels of multi-unit completions which totalled 30,880. This level of multi-unit production is the highest ever level recorded for any Australian capital city.

The South East Queensland region recorded a 6% reduction in production in 2018, which was driven by a drop in completions in greenfield locations. While the 23,520 dwelling completions was lower than the yield achieved in 2017 it still remained 45% higher than the eight-year average with 47% of this stock comprised of multi-unit dwellings.

New residential supply completions across the *UDIA estimates Perth metropolitan region remained subdued Source: CoreLogic, Research4 with a combined 8,610 new homes/multi-units. This volume reflects an 11% reduction on 2017

7 NATIONAL RESIDENTIAL MARKET OVERVIEW Greater Capital City Population Growth and Annual Growth Rate, 2017-2018

Source: ABS Population growth is the primary driver of demand for new dwellings. This is reflected in the population growth profiles across the capital cities, with the largest new home markets of Melbourne and Sydney attracting the majority of recent metropolitan growth. The latest available demographic data from the Australian Bureau of Statistics shows that, collectively, Greater Melbourne and Greater Sydney accounted for 69% of capital city growth over the 2017-18 financial year and 54% of total national growth.

Greater Melbourne recorded a net population growth of 119,400 in the 2017-18 financial year which reflected an average annual growth rate (AAGR) of 2.5%. This was the fastest rate of growth across the capital cities, but was slightly down from its 2016-17 growth rate of 2.7%.

Greater Sydney added 93,400 persons to the base population at an AAGR of 1.8%, followed by Greater Brisbane which grew by 50,100 persons at an AAGR of 2.1%. Annual Employment Growth Rates (2018) & Unemployment Rates (December 2018)

Source: ABS Job growth is another key macro-economic factor underpinning the performance of regional housing market performance. Consideration of recent employment data highlights that while the larger States have been generating robust employment growth (Victoria 4.5% annual growth in CY2018 and Sydney 3.9%) the smaller population based States have exhibited relatively benign employment growth. Furthermore unemployment rates are also considerably higher in WA (6.4%), QLD (6.1%) and SA (5.9%).

8 The varied performance of the nation’s major access the Australian housing market than it was housing markets underscores the on-going even just five years ago. challenge faced by the development industry. In addition to the requirement to adapt to evolving As of June 2018 the median house to median market conditions and demand profiles, the household income ratio was 9.1 in Sydney and 8.1 in development industry is also confronted with Melbourne. This has increased from a ratio of 6.9 in persistent alterations to policy and regulatory 2013 for Sydney and 5.8 in Melbourne in 2013. The settings, at all levels of government, which impacts number of years of household income required for in different ways on residential development. a 20% deposit has ratcheted up to 12.1 in Sydney and 10.8 in Melbourne, up from 9.3 and 8.6 years Australia’s globally significant capital city housing respectively in 2013. The other capital cities have (un)affordability profiles is both a wicked public also experienced a decline in housing affordability policy issue for government while also presenting measures but not as dramatic as the two largest a major challenge for the development industry. cities. Indeed on a straight price to income ratio Across various measures it far more expensive, and affordability has improved in Perth over the last five with much higher barriers of entry to ‘afford’ to years. Housing Affordability Measures (as of June 2018)

Median Dwelling Price to income ratio Years of household % of household % of household income Price (June 2018) income required for income required to required to rent a a 20% deposit on a service an 80% LVR home dwelling mortgage Sydney $845,000 9.1 12.1 48% 30% Melbourne $665,000 8.1 10.8 43% 26% Brisbane $490,000 6.0 8.0 31% 25% Adelaide $429,000 6.4 8.5 33% 27% Perth $480,000 5.9 7.8 31% 22% ACT $465,000 5.1 6.8 27% 21% Source: CoreLogic Capital City Dwelling Price to Income Ratios

Source: CoreLogic The deterioration of housing affordability relates to substantial increases in dwelling values while wage growth has been relatively benign. There are a host of drivers underpinning house price growth which include the aforementioned high rates of population growth coupled with a generally insufficient supply response. Another key factor is the ongoing imposition of government taxes and charges which ultimately flow through to retail pricing.

9 NATIONAL RESIDENTIAL MARKET OVERVIEW Aspiring First Home Buyers (FHBers) are a key the proportional share of FHBer activity in NSW group impacted by the housing affordability crisis. and Victoria which is a reflection of the retreat In all jurisdictions except Western Australia, the of investors (due to tighter lending criteria) and market share of FHBers is currently below long run potentially the much publicised contraction in averages. However, examination of 2017 versus dwelling values. 2018 housing finance data highlights an uptick in First Home Buyers as a % of Total Home Loan Market

Source: ABS The key to long term sustainable, housing The cooling market conditions have precipitated a affordability is matching supply with demand cliff-fall in dwelling approvals in 2018 which puts including the delivery of a diversity of housing some doubt on the forward pipeline to sustain products. While the development industry has the required production levels. In aggregate terms been able to respond to the significant increase in approvals fell 29% in Sydney, 24% in Melbourne, demand over the last four years, the reality is that 36% in Brisbane, 46% in Perth and 36% in Adelaide Sydney and Melbourne (in particular) will need to with only the ACT recording a similar or higher or continue to deliver supply at these historically high volume of approvals in 2018. levels year-on-year for the next two decades. Capital City Dwelling Approvals, 2017 and 2018

Source: ABS

10 11 Blackwood Park by Adelaide Development Company NATIONAL RESIDENTIAL MARKET OVERVIEW Value of Work Done on Infrastructure* by State

Source: ABS *Includes: Roads, Highways, Bridges, Railways, Harbours, Electricity Generation, Electricity Transmission, Pipelines, Water Storage and Supply, Sewerage and Drainage.

The delivery of adequate infrastructure to support recent report, Planning Liveable Cities(2018), clearly growth across our cities is a critical responsibility of demonstrated that our largest cities are often playing State and Federal governments. Across most metrics catch-up in delivering infrastructure with new and benchmarks there has been a significant lift in housing development. This important report also public spend on infrastructure across the nation over noted that: the last two decades. “communities are increasingly In 2018 there was approximately $45B worth disappointed by their experience of works undertaken on public infrastructure of growth … and community trust in projects across the major states. This represented governments to deliver infrastructure a five-year high in combined state expenditure on and services in cities is diminishing.” infrastructure, led by a record spends in NSW (circa $16.8B) and Victoria (circa $10.6B). A key strategic research project for UDIA in 2019 is the development of an Urban Infrastructure Index By way of comparison there was an average of just (UII). The spirit of the UII is to develop a robust $14.1B per annum spent across all the states in the benchmark which allows observations to be made years 2000 to 2005, as compared to an average of regarding the speed and scale of infrastructure $40.4B per annum in the 2013 to 2018 period. being delivered across Australia’s capital cities benchmarked against population levels and growth Despite the heightened spending on infrastructure rates. It is planned to launch the inaugural UII in the across the nation it is clear that infrastructure 2019 State of the Land Mid-Year Update. delivery is still struggling to keep pace with the rapid population growth. Infrastructure Australia’s

12 GREENFIELD MARKET SUMMARY The National Land Survey (NLS) undertaken by Research4 once more provides the core market intelligence underpinning the State of the Land's greenfield market analysis. The following summary paragraphs highlight the key capital city comparative headline trends for 2018.

LOT PRODUCTION

After five straight years of year-on-year growth in total just 7,190 releases. This is the lowest quantum residential land lot release output, 2018 saw a 20% released since 2013 and signifies a possible portent reduction from 2017 production levels, with a total of the expected production levels for the next few of 47,670 lot releases recorded for the calendar years. year across the capital city markets. Melbourne maintained its prominent role of the nation’s largest The continuation of challenging market conditions greenfield market with a total production of 18,470 in Perth is underscored by another year of modest lots despite recording a 20% annual decline. output with a total of 6,670 releases which while only 5% lower than 2017 represented a 24% decline South East Queensland also recorded a 20% on the ten-year average. retraction in lot output in 2018 with a total of 11,150 releases, however it still comfortably The smaller markets of Adelaide and the ACT were retained the mantle of the second most important the only two which recorded a higher year-on-year greenfield market in the country. production output in 2018 with Adelaide up 40% with delivery of 3,110 lots and the ACT up 98% with The greenfield market of Sydney recorded a 1,080 lots. dramatic 43% decline in lot production in 2018 to

Annual Lots Released

Source: Research4

Source: Research4

13 LOT PRICES Median lot pricing across the nation’s greenfield on the other two major east coast housing markets, estates in 2018 maintained a similar trajectory to being 83% cheaper than Sydney and 27% cheaper 2017. Melbourne recorded a 21% annual increase in than Melbourne. the median lot price in 2018 (as compared to 24% increase in 2017) to finish the year at $339,000. In Perth median lot pricing declined 2.1% which was the forth straight year of pricing reduction – The nation’s most expensive greenfield market, reflecting the general weakness in the Perth land Sydney, recorded 3% growth in median pricing market. in 2018 with a year-end lot price of $489,125. While this reflects a rather modest annual growth At $175,675 Adelaide remains Australia’s most output, it is significant in the context of the broader affordable market, by some margin, but did record established housing market pricing correction which a pricing increase of 5.2% across 2018 - which is the is underway in Greater Sydney. largest annual increase recorded in the last decade.

SEQ recorded a 1.3% growth in pricing to finish with a median lot price of $267,200. At this level SEQ represents a considerable affordability advantage

Median Lot Price

Source: Research4

LOT SIZES The trend of declining lot sizes highlighted in The largest median lot sizes are still found in the previous State of the Land reports has continued nation’s capital with the ACT actually recording through 2018 with all markets except the ACT an 2% increase in lot sizing to finish 2018 at 507 recording smaller median lot sizes than the sqm. preceding year. While Perth retains the smallest median lot sizes in the country at 375 sqm, Sydney finished 2018 at 379 sqm with a 4% annual size reduction.

14 NATIONAL RESIDENTIAL MARKET OVERVIEW Median Lot Size

Source: Research4 LAND PRICE The reduction in lot sizes coupled with the rises annual growth (to $413 per sqm) with Sydney (7% in lot pricing has delivered further increases in to $1,290 per sqm) and SEQ (5% to $617 per sqm) the price of land on a per square metre basis. recording slightly lower, yet still significant annual Melbourne’s land price grew 23% in 2018 to $848 growth in land pricing. per sqm. Adelaide also recorded a strong 11% Median Land Price ($/sqm)

Source: Research4 15 NATIONAL RESIDENTIAL MARKET OVERVIEW MULTI-UNIT MARKET SUMMARY Following the footsteps of last year’s report this year’s State of the Land includes an overview of the performance of the residential multi-unit/urban infill markets across the capital cities utilising customised and exclusive data provided by CoreLogic.

The term 'multi-unit' in this report refers to the following residential typologies: apartments/flats/units/row/ terrace/townhouse. Other categories of multi-unit development including aged-care/retirement and student housing is excluded from the analysis.

MEDIAN NEW UNIT SALES PRICE CoreLogic have examined the settled sales contraction in 2017) of new unit pricing, Sydney at transactions of all new residential multi-units across $729,000 still remains 51% more expensive than the the capital cities between 2009 – 2018. Resale combined capital city new unit average of $482,890. transactions of established unit stock have been removed from the analysis. Melbourne recorded a 7% annual price growth in 2018 to record a new unit median price of The median sale price profile of new units across $541,750, which was 35% cheaper than Sydney and 2018 highlights, once again, the significant pricing 12% above the combined capital city average. premium the Sydney market commands. Despite a 0.1% contraction in 2018 (following a 2.5%

Annual Median New Multi-Unit Sale Price

Source: CoreLogic

Brisbane unit prices contracted by 3% in 2018 to ACT units also declined in median sale value in 2018 record a median sale price of $434,500. Meanwhile (down 5% to $433,075) while Adelaide's pricing the on-going pricing contraction for units in Perth was flat. This result confirms Adelaide as the most continued in 2018 (down -3%) to finish the year at affordable multi-unit market in the country, 12% $393,825. This reflects a 16% contraction for new cheaper than the combined capital city unit stock pricing in Perth since 2014. average and 100% cheaper than Sydney.

16 MULTI-UNIT COMPLETIONS Based on CoreLogic’s estimates there was an Multi-unit supply in Brisbane reduced by 16% in 11% annual reduction in total multi-unit dwelling 2018 with a total volume of 11,155 completed. completions in 2018 across the combined capital This production scale still comfortably positioned cities, with a total supply yield of 71,255 units. Brisbane as the third largest multi-unit volume While this was the lowest output since 2015 it still market, and was 11% above the ten-year average. reflected an 8% increase on the ten-year average volume. The remaining comparatively low volume capital city markets also all recorded falls in production in Sydney and Melbourne remain the focal point for 2018 with the ACT down 42% (total output of 2,670 multi-unit production with 74% of completions units), Perth down 15% (total output of 2,910 units) attributable to Australia’s largest and most mature and Adelaide down 8% (total output of 1,880 units). housing markets. Sydney reclaimed the mantle in 2018 as the largest new multi-unit capital city The geographic distribution of new units across market with a total of 30,880 completions. This was the capital cities varies considerably. In Brisbane, 16% increase on the 2017 yield and notably the Adelaide and Canberra over 60% of all new supply highest volume ever recorded across any Australian in 2018 occurred within a 5km band from the CBD. city. This highly centralised supply picture contrasts with the far more evenly spread of supply recorded in Melbourne recorded an estimated 21,760 units in Sydney, Melbourne and Perth where only around 2018 which represented a 28% decline on 2017 30% of new supply occurred in this 5km inner band, volumes. As predicted in last year’s State of the Land with far greater volumes occurring in the middle report 2017 represented a peak year of multi-unit and outer ring areas. The pattern of a broader supply in Melbourne, with the forward development geographic distribution of new unit supply in pipeline indicating further moderation in production Melbourne and Perth is an interesting feature of output in the forthcoming two years. the 2018 data which is a marked change from the far more centralised supply picture reported in last year’s State of the Land report.

Annual Multi-Unit Completions

Source: CoreLogic

17 NATIONAL RESIDENTIAL MARKET OVERVIEW Multi-Unit Completions by Geographic Zone

Source: CoreLogic MULTI-UNIT PIPELINE CoreLogic have produced point-in-time estimates construction, with 41% of this stock in Sydney on the multi-unit pipeline across the capital cities, (42,000 units) and 37% in Melbourne (37,300 units). based on a December 2017 snapshot and December The remaining under construction supply was split 2018 snapshot of their industry leading Cordell between Brisbane with 11,500 units (11%), the ACT Construction database. with 4,700 units (5%), Perth with 3,950 units (4%), and Adelaide with 2,195 units (2%). The forward pipeline of possible unit yields (comprising units in the ‘Under Construction’, A particularly striking feature of the pipeline is the ‘Approved’ and ‘Early Planning’ categories) has growth of units in the ‘Abandoned’ category, which remained steady for both Sydney and Melbourne grew 400% (from 22,000 units in December 2017 across 2017 and 2018, at circa 193,500 units and to over 110,000 in December 2018) across the 175,000 units respectively. Brisbane recorded an combined capital cities. While all cities recorded overall 19% increase in potential forward yield in growth in abandoned units, Melbourne saw the 2018 (to total circa 59,500 units), while Perth also largest aggregate growth (+32,380) followed by saw a healthy 24% increase in 2018 to total circa Sydney (+29,030) and Brisbane (+19,645). The 36,800 units. growth in abandoned, and deferred projects to a lesser extent, aptly reflects the challenging market As at December 2018 there was a combined conditions impacting project feasibilities across the capital city apartment yield of 101,630 units under eastern seaboard.

Capital Cities Multi-Unit Pipeline by Status (Dec 2017 vs Dec 2018)

Source: CoreLogic 18 MARKET OUTLOOK The residential land development industry is bracing for another challenging year in 2019. Based on UDIA forecasts there is expected to be a further material reduction in total dwelling production emerging from both greenfield release areas and multi-unit development sites across the combined capital cities. This relates to what amounts to a ‘perfect storm’ of factors coalescing, including the natural downswing in market cycle (principally East Coast markets) compounded by the retreat of investors, and tightened credit conditions in the wake of the Financial Services Royal Commission.

The stimulus to the housing market provided by the record low interest rates has gone well past the peak (which was broadly seen as mid 2018 for most markets) as banks consider further ratcheting-up of mortgage lending rates and maintenance of very stringent lending criteria for investors.

While tougher access to bank finance is impacting retail consumers, developers are also facing significant and mounting funding challenges. With the retreat of the major banks funding certain development projects (particularly for multi-unit projects in deemed "risky" locations), a range of alternative wholesale and retail funding sources continue to emerge, including crowd- sourcing funding platforms.

A range of additional macro-scale economic, regulatory and political challenges may also impact the residential development sector in the year ahead (while other drivers will vary from city to city). These include economic growth, or lack of it, the state of supply and a range of political measures which could be stimulatory.

The following statements summarise the key market perspectives and outlooks from each UDIA State Office:

South East Queensland has a positive outlook ahead with expectations of increasing interstate migration and fair employment levels. Affordability (Median Annual Family Income to Average Loan Repayments) is at levels not beaten since 2003. The greenfield sector eased recently with tightening lending requirements. Previous over-supply of investor grade units in some inner Brisbane locations has kept a lid on unit prices and affordability concerns but is being absorbed. Managing impacts on land supply from new environmental and other controls and additional red

19 tape will be critical to ensure developers can respond Government’s response to the Financial Services to population growth demand. Royal Commission, combine to hold back housing demand. This is demonstrated by retail vacancy While the underlying fundamentals remain robust rate falling to just 2.9% As these issues are resolved, for Sydney is it is expected that 2019 will present consumer confidence is likely to lift and as such, a year at least as challenging, and most likely more we anticipate that housing demand is likely to lift challenging, than 2018 for the development industry. towards the end of the year and moving into 2020. With retail sales at rock bottom, purchaser enquiries drying up and signs of heightened settlement The ACT’s robust employment landscape, low defaults, the industry is preparing for a rocky 12 – 18 unemployment and a robust population growth months ahead as the housing market continues to rate will continue to underpin solid housing market correct. There is an expectation of a marked drop in performance. Buyer finance is a major issue facing completions of new products (across all typologies) property purchasers, but with the ACT Stamp Duty as the pipeline starts to erode and is not being concessions for First Home Buyers coming into effect refilled to a sufficient extent to satisfy forward year- from 1 July 2019 a welcome stimulus to capital on-year underlying demand. This could put upward growth and housing market activity is on the horizon. pressure on pricing and cause a further deepening of the housing affordability crisis in the medium term.

Underlying demand in Victoria remains strong and the state is experiencing continued population and employment growth. It is anticipated that a new baseline will be reached in terms of the availability of finance, and the market will adjust to these expectations, paving the way for underlying demand to be converted to real demand in the coming 12 to 18 months. However, ongoing reform of the Planning Scheme is required to streamline post Precinct Structure Plan approvals, processes for greenfield developments, and to provide regulatory certainty for apartment developments.

Ongoing low population growth has continued to temper Adelaide’s overall level of housing activity, however following the 2018 State Election the new State Government made increasing the population a priority, which has been welcomed by the business community. Residential greenfield markets have remained steady and this has been accompanied by a cautious optimism around the State’s medium- term economic outlook, particularly in light of SA’s comparative performance in relation to the remainder of the country. While infill remains steady as it relates to suburban renewal, apartment growth has slowed as a result of the expiration and non- renewal of stamp duty concessions for apartments, particularly in the CBD.

Improving economic conditions provide positive signs ahead for the Perth housing market. Whilst the job market and population growth figures have been improving, the Perth housing market continues to face headwinds. The tightening of lending criteria by the retail banks, negative media coverage of the property markets in the eastern states, uncertainty regarding possible amendments negative gearing and capital gains tax and the Commonwealth

No. 1 Lacey by 20 Cornerstone Property Group RECOMMENDATIONS Providing sufficient volumes of appropriately located, In part due to the attractiveness of our cities we accessible and affordable housing for Australia’s also continue to rank very highly on unaffordable rapidly growing population is one of the greatest on- housing and household debt global leader boards. going challenges facing the nation. To robustly address the affordability crisis it is critical that governments at all levels continue to address The property development sector is united in underlying inefficiencies that increasingly undermine responding to the on-going housing challenge while the delivery of affordable land supply and new home a variety of changes continue to sweep across the construction. industry resulting in a need to adapt and alter the nature and character of business operations. Taxes and charges on development remain high with some governments foreshadowing further levies While the multi-unit sector in aggregate will continue which must be reconsidered if government is serious to expand across the capital cities there remains about improving housing affordability. a need for a greater supply of medium density or ‘missing middle’ housing to compliment the higher Drawing from the recently released UDIA National volumes of apartment projects being delivered. In Policy Priorities(2019) document we make the many jurisdictions this will require policy support following recommendations to government to and government leadership through, for example, improve housing affordability and support jobs and demonstration projects on government owned land. economic growth nationwide.

The polycentric city model will continue to become 1) Get Population Settings Right more of a focus for urban planning and with the mounting costs of congestion weighing on • Establish regular short/medium/long-term productivity we will be building more urban centres population forecasts to better inform strategic and nodes and less ‘dormitory suburbs’ as we look to land-use and infrastructure plans. embrace the ’30-minute city’ aspiration. • Identify the base level of services expected for Transport infrastructure will be critical to access key elements of liveability to accommodate a these centres and to attract new knowledge larger population including housing affordability intensive jobs to these locations. Public transport measures, transport, key infrastructure and the systems need to evolve to be less exclusively radial to environment. the CBD and are likely to include more light rail and in-time driverless buses and mini-buses. • Use data to inform a national strategic population plan that predicts infrastructure Federal and State Government's are currently and housing requirements, to accommodate planning and delivering significant new rail projects population growth and delivers detailed, costed and it is critical that coordinated and integrated infrastructure and land release plans - including urban planning is undertaken ito ensure we deliver delivery time frames. the optimal future city outcomes. • Examine options for settlement planning to The opportunities to embrace efficiencies based on ensure the benefits of population growth are smart city technology harnessing the Internet of more evenly distributed across Australia. Things (IoT) will enable greater productivity which is ultimately the goal for our global competitiveness. 2) Deliver Urban Infrastructure

UDIA will continue to forge a leadership position • Remove the Politics – UDIA seeks an championing new and innovative urban planning ‘Infrastructure Accord’ where the major parties initiatives and polices designed to facilitate the agree to permanently insulate the identification, urban growth outcomes our cities need to thrive and funding and delivery of significant infrastructure flourish into the future. from partisan politics.

Australia’s cities continue to rank highly on quality • The Infrastructure Accord (as exists with of life and liveability leaderboards, however there is Foreign Affairs @ Defence) will help ensure the mounting push-back from the community in Sydney long-term infrastructure cycle is disconnected and Melbourne about congestion, density and from the short-term political cycle. Robust, population growth. independent institutions such as Infrastructure

21 RECOMMENDATIONS Australia already identify and prioritise transport incentives scheme, linking federal funding to infrastructure delivery and could be quickly state government performance on infrastructure expanded to include other types of growth delivery through existing infrastructure league supporting infrastructure. tables.

• All parties must commit to delivery over the 3) BOOST HOUSING SUPPLY AND DIVERSITY opportunity for political point scoring, agree on the long-term pipeline and the mechanisms for • Establish clear state quotas for new homes / delivery, and build long term confidence and land supply based on national population and certainty of delivery. settlement planning data and strategies.

• Get the planning right – the Infrastructure • Implement a financial incentives scheme Accord allows a greater long-term focus on linking federal funding to state government effective planning. A permanent inner cabinet- performance on planning system reform and level Cities Ministry in all future federal meeting housing supply targets. governments would allow continuity, and deliver the resources to ensure Australia’s urban • Identify obstructions that seek to preserve infrastructure is world class and strategically current amenity at the cost of locking out future planned. It will also enable the Commonwealth generations. to work with the States in very long-term planning, including securing infrastructure corridors. • Review state-by-state and local government- by-local government efficiencies and costs of planning regimes; identify unnecessary • Fund it properly – long term certainty delivers blockages in red and green tape, and regulatory significant opportunity for funding – particularly charges. with global interest rates at record lows. The Infrastructure Accord can allow federal governments to adjust budgetary outlooks to • Re-establish the National Housing Supply properly distinguish between investments (such Council to oversee the efficiency and velocity of as infrastructure) and funding ongoing services. new supply. A major increase in investment in urban infrastructure recognises the shift in Australia’s • Incentive state and local governments to productive capacity from mining and agriculture promote and deliver greater housing diversity to services. Any investment will deliver to meet changing consumer lifestyle and considerable long-term dividends in increased affordability needs. productivity of our global cities. 4) REFORM TAXES AND CHARGES • A sense of urgency – in an increasingly competitive world, Australians must act quickly • Use a range of measures to broaden the overall on urban infrastructure. Our population hit taxation funding base to protect struggling 25 million in August 2018 and is expected to home buyers from bearing the burden of grow to more than 30 million by 2031. We additional fees and charges. must harness the productive capacity of these Australians through a new era of infrastructure • Maintain capital gains and negative gearing service delivery. An era in which we are settings as they are – at least until the potential delivering strategic infrastructure for the next impacts of any proposed changes are fully generation, not just catching up on the last. understood.

• Follow through – with quality ideas such as • Support the states and territories with tax the National Housing Infrastructure Facility (NHFIC) to fund key infrastructure to unlock housing supply. Extend this to a financial

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Virginia Grove by Lanser reform – including reducing the unsustainable • Build a multi-dimensional policy perspective levels of tax on new property. through COAG coordinating transport, infrastructure, environment, housing, finance, • Incentivise states and territories to transition education, health, and social services. away from stamp duties. • Lead and empower the target of the • Be strict in requiring cost benefit and regulatory “30-minute” city where residents take less than impact analysis on any new processes and 30 minutes to commute to work. charges. Continue to streamline federal and state environmental assessment and approval • Support active transport design (such as walking systems. and cycling), zero carbon public transport and open the way for innovative infrastructure such • Critically evaluate every dollar that’s added to as driverless trackless trams, autonomous cars, the cost of a new home. trucks, and drones.

• Re-assess the impacts of taxation policy • Deliver smart technology that connects roads, currently imposed on foreign buyers. paths, traffic lights, and street signs with cars, trucks, trains, and trams – reducing congestion, 5) IMPROVE CLARITY AND CERTAINTY improving connection and lifting productivity.

• Identify global best practice in urban planning • Reduce waste and support communities and support the states in delivery. committed to leaving a better planet to following generations. • Develop a National Affordable Housing Strategy, including relaunching and expanding the • Deliver better places for everyone to live at any National Rental Affordability Scheme. stage of life with quality schools, social facilities, and hospitals. • Advance the methodology, budgetary support, and delivery of City Deals. • Ensure current and successive federal governments incorporate a ‘Cities Ministry’ within Inner Cabinet leading the key issues of • Advance the National Cities Performance cities, urban infrastructure and population. Framework.

• Include league tables on comparative state performances in the areas of housing supply, infrastructure delivery and efficiencies in planning and approval regimes.

• Full strategic assessment of environmental planning processes at federal, state and local government levels to provide clarity and certainty for future urban development.

• Review any proposed Building Act changes to critically assess the impact on housing affordability.

6) FUTURE PROOF OUR CITIES

23 SOUTH EAST QUEENSLAND SUMMARY The land development industry in South East Queensland (SEQ) eased in late 2018 following four years at strong levels. Lot sales and supply had been well matched but reduced by around 16%, with increased uncertainty around lending and the overall economic outlook.

High levels of apartment construction occurred between 2015 and 2017 in Brisbane with new completions now easing. High stock levels in some areas are continuing to suppress apartment prices, however take up of stock will be assisted by increasing Queensland population growth.

It is critical that policy, planning processes, and infrastructure provision arrangements do not exacerbate the market softening. GREENFIELD MARKET ANALYSIS

Lot releases in SEQ declined in 2018 to 11,148 for the year, down 20% on 2017. This however remains at levels that have been high since 2014. Supply has declined in line with sales, with current trading stock (stock in hand) a comfortable but not excessive 4.5 months of supply (up from 3.8 months in 2017). Also in the December quarter 2018 a high 189 active projects were recorded. In general land product is being made available in locations that match customer demand and the product is reflecting customers’ requirements.

The median lot price for SEQ rose to $279,000 reflecting a 6.5% increase from December 2017. Median prices by local government area included: • Ipswich $210,000 (steady) • Logan $232,000 (steady) • Moreton Bay $273,000 (steady) • Redland $320,000 (up 12%) • Gold Coast $326,000 (rising) • Sunshine Coast $330,000 (up 15%) • Brisbane $407,000 (steady)

There is concern that very limited land supply in Redlands Coast is not meeting demand which is resulting in price hikes. On the Sunshine Coast prices appear to have been impacted by high sales levels and limited land supply in northern areas. Recent reduced buyer activity may be helpful in moderating price Rosehill Waters escalation as supply catches up. by Noahs Rosehill Waters2418 and Coterra Environment Annual Greenfield Activity

Source: Research4

Median Lot Price, Land Price ($/sqm) and Median Lot Size

Source: Research4

25 Greenfield Summary Table

Source: Research4 BROADER MARKET TRENDS The population of Queensland increased lot purchase cancelations having risen from by 85,547 in 2017/18 and up from 82,477 normal levels), other uncertainties regarding the previous year and continues the growth house prices drops in Sydney and Melbourne experienced since 2015. Net interstate and the upcoming Federal election as the key migration increased by 39% in the period and factors. With Queensland population growth comprises 29% of the year’s growth. rising and employment levels stable, demand is likely to bounce back when conditions Housing demand is strongly related to growth settle. in employment. Over the year to January 2019 employment growth in Queensland A number of larger developments, remained positive but moderated to 1.1% in representing around 20% of supply, are trend terms. Job advertisements in January providing more affordable product to the 2019 were stable at 32,900 compared to the market and are being well supported by previous year. buyers.

An average of 730 lot sales per calendar The SEQ median lot size continued its long month were recorded in the last quarter of term decline to 445 sqm, down from 447 in 2018 down from 1,030 per calendar month in December 2017. The price per sqm of land 2017. Economic and population calculations rose by 4% to $627 per sqm over the year to suggest a demand for 900 lots per month in December 2018. the current market A range of factors could be impacting demand but members indicate that tighter finance lending criteria (with

26

Parklands by Grocon SOUTH EAST QUEENSLAND Greenfield Sub-Market Performance, 2018

Source: Research4; UDIA Queensland

27 SOUTH EAST QUEENSLAND MULTI-UNIT|INFILL ANALYSIS

The multi-unit sector across Greater Brisbane The median unit sale price (established recorded 11,155 new completions in 2018 market) across Greater Brisbane was which represented a 16% reduction from the $382,158 representing a 1.9% contraction preceding year. Despite the lower volume in from the 2017 result. With a vacancy rate of 2018 this supply level is still historically high 4.7%, rent prices have been stable at $383 but in a market that appears much more per week for a gross yield of 5.3%. For new accepting of apartment living. apartments the median price in 2018 was $434,500. Gross yields remain favourable High numbers of apartment completions compared to other east coast cities. occurred in areas immediately to the north and south of the CBD. Units and apartments are relatively affordable, as planning policy permitted dense In the next 12 months substantial unit infill in some areas while policy restrictions on numbers are forecast for completion with outer area new housing lot supply and middle 2,401 in the CBD as well as 1,686 in Kangaroo ring infill are making affordable housing in Point/Woolloongabba south of the CBD, and those areas unlikely. 920 in West End.

Multi-Unit Summary Table

Source: CoreLogic

28

Oxley + Stirling Residences by Aria Property Group Median New Unit Price & Annual Unit Completions

Source: CoreLogic

29 Multi-Unit Completions 2018, by Postcode

Source: CoreLogic BROADER MARKET TRENDS The overall outlook for continuing population growth in the state will support underlying demand for housing construction. Residential development remains a strength of the Queensland economy, with most activity in SEQ.

Queensland Housing affordability (Median Annual Family Income / Average Loan Repayments) is at levels not achieved since 2003.

Dwelling building approval numbers for Queensland moderated to 40,018 for the year to December 2018. Continuing difficult economic circumstances in some Queensland regional areas are still restraining home construction in those areas compared to SEQ.

30

View from Arc by Mosaic SOUTH EAST QUEENSLAND

STATE POLICY ENVIRONMENT The Queensland development industry faces Other concerns for the industry include: a number of significant policy challenges in 2019. Ongoing land supply for housing • The proposed project bank account in South East Queensland (75% of dwelling legislation is being implemented supply) relies increasingly upon more (with contractors required to hold fragmented land parcels. Research for the building funds in a trust account). This Institute identified that most available lots will require a greater administrative for subdivision (~98%) are less than 5ha, burden on building projects to improve while the overall average lot size is 1.01ha. subcontractor payment security

It is critical that additional growth areas • An additional $75 a tonne waste levy are addressed. The State Government has waste charge is to be introduced later in supported UDIA’s calls for action with a 2019. Growth Monitoring Program examining land supply and to examine facilitating • Increased transfer duty on foreign fragmented land. Improved infrastructure buyers of residential property to 7% and delivery arrangements will also be critical. increased land tax (up 0.5 points) for holdings over $10 million were put in Changes to the South East Queensland koala place in 2018. conservation strategy are expected shortly, and are a major concern for the industry. • The $20,000 First Home Owners Grant for Early habitat mapping changes have reduced new homes was reduced to a maximum developable area and greater controls are of $15,000 in 2018. anticipated. UDIA QLD had sought greater transparency of Ongoing media coverage of community charging and expenditure by local government opposition to development remains a key regarding development infrastructure. This issue for developers. Local governments would provide the community with greater are responding to community concern with understanding of the benefits to their locality increased restrictions on development and from development. This has been actioned by land supply, ignoring the critical need to the government and requirements for greater meet population growth with affordable charging detail from local government are housing. UDIA QLD has undertaken presently on consultation. research that assists developers to better communicate with local communities about Local governments continue to increase the benefits of development. controls including higher on site carparking, landscaping, sustainability and design controls, flood exclusions, and further limits on infill dual occupancy and accessory dwelling opportunities.

31 SYDNEY SUMMARY The Sydney metropolitan housing market recorded another record year of supply in 2018 with over 43,000 new dwellings being added to the established housing stock. This represents a 19% increase on 2017 completions and a 24% increase on the four-year average. This continues the recent trend of historically unprecedented year-on-year dwelling additions to the metropolitan housing market. It is significant that the multi-unit sector continues to account for the vast majority of Sydney’s new dwelling supply, recording over 73% of all dwellings completed in 2018.

While record dwelling completions continued to flow through the pipeline, 2018 represented an extremely challenging year for the development sector with an inevitable market cycle downturn being further compounded by the wholesale retreat of off-shore purchasers and investors – led in a large part by dramatically tightened credit lending criteria by the major financial institutions.

With median pricing across new residential products contracting across 2018 it is clear there has been at least a partial re-valuing of various sub-markets underway. Auction clearance rates averaged 54% across 2018, down from 71% in 2017 while vacancy rates gradually ratcheted northwards finishing 2018 at 3.9%, which is up from 2.3% at the start of the year.

While the short-term delivery pipeline will continue to churn out strong completions over the next 12 months (due to a large volume of units in projects under construction) the trajectory in building approvals is trending downwards sharply which is going to put significant pressure on the ability to deliver adequate supply in the medium term.

GREENFIELD MARKET ANALYSIS According to the Research4 National Land Survey (NLS), the Sydney new land market averaged 475 lot sales per month across the 2018 calendar year. This represents a 55% cliff-fall in sales volumes from the peak supply year of 2017 where over 1,052 net lot sales per month were recorded. The 2018 lot sales volume of 5,708 was the lowest recorded in Sydney since 2013.

Following a similar fall to annual net land sales, releases of new lots tumbled 43% to total 7,187 in 2018 which reflected a 33% decline on the five year average of 9,518 releases.

32 46-48 Foveaux Street by SR46 Pty Ltd SYDNEY The average annual number of active estates the broader housing market moderation and per quarter was 86, down slightly from the a likely affordability threshold for land and SUMMARY peak of NLS 89 active estates in 2017. While housing being reached across the greenfield the number of active estates in 2018 was release markets. up over 40% from the 10 year average, the material reduction in sales volumes in 2018 The market slow down in sales has translated underscores a dramatic fall in average estate to a spike upwards in the average annual output recorded across all of Sydney’s land number of trading months held by estates release corridors. across Sydney in 2018 to 3.6 months, which is up from 1.1 months in 2017. In general, The national trend of smaller average lot sizes a result of 3.0 months of trading stock continued in 2018 for Sydney’s land estates indicates a robust balance between supply with the median lot size averaging 379 sqm, and demand, so upward trajectory for this which reflects a reduction of 24% from the headline metric aptly reflects the significant previous year (498 sqm). This median lot size softening of demand being experienced sees Sydney comfortably retaining the second across the greenfield release area. smallest median lot sizes across the Capital Cities – just behind Perth at 375 sqm. As at the end of 2018, the Royal Commission into banking practices has been interpreted The NLS recorded the annual median lot to having caused major uncertainty in price for Sydney in 2018 at $489,000, which the greenfield market. This uncertainty – represented a plateau in annual price growth. relating to lending criteria, negative gearing This is the first time flat growth was recorded and investment loans – has undoubtedly in median pricing since 2011-2012. Across the contributed to the lower than expected 10-year reporting timeframe of the National greenfield sale volumes. The result has been Land Survey, median lot pricing in Sydney has that customers are either unable or unwilling averaged a growth rate of 6% per annum. to commit to a loan for new land/house-land The flattening in lot price growth reflects packages.

Annual Greenfield Activity

Source: Research4

33 Median Lot Price, Land Price ($/sqm) and Median Lot Size

Source: Research4

Greenfield Summary Table

Source: Research4

34 Willowdale by Stockland SYDNEY UDIA NSW SYDNEY LAND SUPPLY FORECAST

Based on consultation with key development industry participants, UDIA NSW forecasts a moderation in the lot production emerging from Sydney’s greenfield release areas – as compared to the recent years. Due to softer marker conditions, the annual dwelling production for greenfield areas is expected to average circa 7,700 lots over the next five years, which compares to 8,920 over the preceding five years.

Based on the traditional historical development split of 70:30 between infill and greenfield dwelling production, it can be argued that Sydney needs to produce circa 12,400 greenfield lots per annum for the next twenty years in order to meet current NSW Government forecasts for an additional 1.7 million people to 2036. Clearly we will fall well short of this target.

In addition to the current market headwinds there is deep concern across UDIA NSW members on the medium and longer term impact on greenfield supply from various policy and regulatory changes – both announced and in the wind. The uncapping of Section 7.11 charges and new draft Special Infrastructure Contribution (SIC) levies being rolled-out by the NSW Government adds to uncertainty – which is translating into a slow-down in development site acquisition activity – particularly in the fragmented North West Growth Centre. The downstream consequences of reduced acquisition activity (particularly from the medium and smaller scale developers) is difficult to accurately quantify however it is certainly likely to further impact on the depth of the forward supply pipeline.

Source: UDIA Land Development Committee

35

SYDNEY MULTI-UNIT|INFILL ANALYSIS The cornerstone to Sydney’s record breaking year-on-year dwelling supply performance continues to be through the production of multi-unit dwellings – including apartments and townhouses.

CoreLogic estimates that there were a total of 30,880 multi-unit completions in 2018 which represents a 16% increase on 2017 and a 212% increase on the volume achieved in 2012.

Completions were highest in postcode 2113 (Macquarie Park/North Ryde/East Ryde): 1,631 unit completions. Other postcodes with high unit completions were postcode 2121 (Epping/North Epping: 1,373 completions), postcode 2112 (Denistone East/Ryde/Putney: 1,351 completions), postcode 2145 (Pendle Hill/Pemulwuy/Greystanes/Girraween/Constitution Hill/Westmead/ South Wentworthville: 1,335 completions) postcode 2170 (Preston/Casula/Lurnea/Liverpool/ Warwick/Chipping/Moorebank/Hammondville: 1,201 completions), postcode 2020 (Mascot: 1134 completions), and postcode 2205 (Wolli Creek/Turrella/Arncliffe: 1,172 completions).

Sydney continues to comfortably hold the most expensive multi-unit dwelling stock in the nation with the median price for new product sales in 2018 sitting at $729,000. This reflects a 32% pricing premium on median sales pricing on Melbourne and a 74% premium on Brisbane – the other major capital city multi-unit markets.

The median weekly rental asking price in 2018 across Greater Sydney was $540 which reflected the same median from 2017. Sydney was the most expensive capital city to rent in Australia being 29% more expensive than Melbourne and 20% more than Canberra. The proportion of renters in Sydney is 64%, slightly lower than Melbourne's 69% renter ratio. Rental yield sits at 3.8%.

Vacancy rates from CoreLogic show Sydney apartments at 3.9% vacancy for the end of December 2018. This has been roughly steady since the same time in 2017.

Multi-Unit Summary Table

Source: CoreLogic

36 Wentworth Point Marinas by Billbergia MULTI-UNIT|INFILL ANALYSIS Median New Unit Price & Annual Unit Completions

Source: CoreLogic

Multi-Unit Completions 2018, by Postcode

Source: CoreLogic

37

SYDNEY STATE POLICY ENVIRONMENT Sydney has a housing affordability crisis with the latest of missing infrastructure’ which could be delivered Demographia Global Affordability Survey ranking the for $286 million. UDIA NSW is strongly advocating ‘Emerald City’ as the third least affordable city in the for the establishment of an Urban Development world (trailing Hong Kong and Vancouver). Recent Program to prioritise projects, funding and supporting community polling conducted by Newgate Research for infrastructure. The UDP approach was successfully UDIA NSW underscores this analysis by revealing that trialled by UDIA NSW with a Blacktown City Council 73% of Sydney residents supporting the proposing that Pilot in late 2018. ‘Sydney has a housing crisis’. Last year we predicted there may have been a desire For the industry 2018 seemed like it could have been to wait until after the election to make difficult a year of action on housing affordability, and with the decisions, the NSW election has been dominated by Greater Sydney Commission's (GSC) Region Plan and discussion about ‘overdevelopment’. The has seen District Plans finalised in March it seemed like it was the Government suspend Low-Rise Medium Density finally time to get some real action on long term supply Housing Code and commence an ‘assurance review’ coordination completed. in Ryde. Similarly, Labor has promised to remove the Low-Rise Medium Density Housing Code and end spot However, the expansion of taxes and charges and rezonings. mounting political and community pressures have created considerable uncertainty for the industry. With declining approvals, and pressure on infill The uncapping of section 7.11 contributions and development it will be critically important for the the introduction of 25 new special infrastructure government to accelerate greenfield growth and contributions (SICs), and expanding inclusionary zoning look at urban renewal opportunities, which bring the through SEPP 70 is making it much harder to achieve community on a journey about the future of Sydney. viability. We are, however, cautiously optimistic that there will be further reform and a bit more sensible policy UDIA NSW has been strongly advocating for once the dust has settled after the forthcoming State infrastructure funding reform. Last year an election. infrastructure funding taskforce of 20 industry leaders commissioned research through SMEC that showed The so-called ‘Hayne-pain’ stemming from the Royal NSW had the highest infrastructure contributions Commission is hurting industry, with a rebasing in what in the country. Currently, a quarter of the price of a purchasers can afford, which has emphasised the need new home in Western Sydney is made up with taxes, for a supply led solution to affordability, which UDIA charges, and regulations. The Planning Minister has NSW has been supporting through itsHousing the Next signalled that there is likely to be contributions reform Generation Campaign. after the election. This year, councils are implementing Local Strategic In November, the Planning Minister said the Planning Statements which need to align with and development industry was at risk of losing its ‘social reaffirm the vision of a ‘Metropolis of Three Cities’. licence’. We agree, there has not been the alignment With spot rezoning under threat, it is more important between growth and infrastructure in NSW, which than ever to ensure councils have a strong planning has damaged the community sentiment about vision that feeds into LEP updates expected next year. city growth. The UDIA NSW Building Blocks report identified 90,000 lots that were held up by ‘one piece

"After extended solid growth, Sydney has put out the anchor whilst the tide changes. This was expected; however, the perfect storm of the Royal Commission’s impact on lending, along with tightening controls on foreign investors, has provided a harder landing.

The upcoming Government elections, uncapping of Local Government contributions, and the eye watering values of recent draft SIC plans have also thrown considerable uncertainty into the industry.

There is light at the end of the tunnel. Demand is healthy for good product, as Sydney still has a historic supply shortage. Developers who focus on acquiring and delivering solid projects, with disciplined fundamentals will weather this fine; picking up some opportunities Paul Irwin Project Director, Country Garden from others that have flown too close to the sun."

38 39 Ryde Garden by Country Garden

MELBOURNE SUMMARY Melbourne’s greenfield and apartment residential development markets experienced unprecedented growth in 2017. Dwelling supply reached a high of 66,245 dwellings in FY17-18, which was the result of very high numbers of planning and building approvals for both the greenfield and apartment markets issued up to three to four years prior.

Using a range of measures, it is evident that market activity and price growth peaked in late 2017 and has been in decline since then. Key factors impacting on the current deteriorating state of both the greenfield and apartment markets include:

1. Weaker purchasing power of consumers due to increasing cost of living and stricter bank lending standards;

2. Regulatory and policy changes which have discouraged investors from buying property off-the-plan; and

3. Strong underlying demand due to population growth and low levels of unemployment, which is not translating into real demand because of weaker purchasing power and price growth.

A robust pipeline of planning approvals, greenfield residential lot sales, building approvals, and construction commencements is needed to ensure that a sufficient, consistent supply of new dwellings will be delivered in the coming two to three years.

The most recent data relating to building approvals, dwelling commencements, and greenfield residential lot sales indicates that future dwelling supply is in sharp decline, which will be further compounded by continued high levels of population growth in Victoria in general, and Melbourne in particular. GREENFIELD MARKET ANALYSIS 2018 was a year of adjustment for Melbourne’s Greenfield land market; total land sale volumes fell below 1,500 per month and the year ended with just 928 lot sales per month in December 2018. The market’s performance was considerably lower than in 2017 when land sales peaked at 2,162 per month. At its peak, Melbourne’s annual land sales reached 25,000 lots but are currently running closer to 15,000 lots per year.

The supply of new residential lots in the Melbourne Greenfield market meets an average of 38% of total housing demand

Banksia40 by MAB (Photo by Dianna Snape) since 2008. Over the past 12 months this made across the 2018 year will be looking for has increased to an average of 48% of total a new owner before settlement occurs. This is housing demand for Melbourne. The higher equal to 42% of total expected annual demand. share shows the important role the Greenfield With most lot sales in 2018 taking 18 to 24 housing market plays in maintaining downward months to settle, pressure to on-sell contracted pressure on overall house prices. product before close of 2019 will be significant.

Based on population growth numbers, the Settlement risk and price were defining issues underlying demand for all housing types is of 2018. There was a lot of talk about the lot currently estimated to be 3,685 dwellings price falling in 2018, however the median per month for metropolitan Melbourne. The lot price did not correct. At the beginning forecast is for total housing demand [all types of 2018, the median lot price was $332,000 of housing stock] to average 3,360 dwellings [March 2018] and at the end it had moved up per month. The current level of underlying marginally to $345,000 per block. demand for new land is estimated to be 1,200 per month or 14,000 per annum. The values of the greenfield market and the established housing market are linked. Given It is highly likely that over the coming six the established housing market is currently months total activity will remain below 1,200 shedding value, the greenfield market is now per month, partly in response to the current facing the prospect of being over-priced. The uncertainty around bank lending and the median lot price for the December quarter competitive pressure from market participants was $345,000, up 0.6% for the quarter and up who speculated with new land during 2017. It 13.8% for the year. has been estimated that up to 6,000 lot sales Annual Greenfield Activity

Source: Research4

41 Median Lot Price, Land Price ($/sqm) and Median Lot Size

Source: Research4

A primary reason for the lack of price Greenfield Sub-Markets correction is the fact that most land sales are yet to title. Developers cannot easily adjust The Melbourne greenfield market is made land prices if there are significant sales yet to up of several sub-markets located in growth settle. corridors. The South East greenfield market has been a major provider of new land for a long The cancellation rate spiked for the December time. In 2018 this sub market, and Cardinia, quarter at 12%. The rate jumped from 5% to shifted from being a power house of supply, 12% in one quarter suggesting a level of panic a market on the way out. Traditionally the across builders and or consumers. The highest Casey market has responded to 7% of total rate was set by estates located across the Melbourne housing demand, this is now down Melton growth corridor. to 5% and the forecast is for this to fall further.

The number of estates trading increased for This supply issue, partnered with a lack of the quarter, from 134 in September to 143 development capacity across the South East in December. This brought down the average corridor, has resulted in land prices being estate sale rate to 6 per month per estate. The above fair value. The outlook is for land prices production of new land lots for the quarter to adjust slowly and for the whole region dropped by 30%. to move toward medium density housing product. As expected, stock levels are on the rise, with current stock ready for sale now equal to 2,854 lots or 3 months’ worth of trading.

42 Harbourfront Balmain by TOGA MELBOURNE

Across the North of Melbourne, the Epping, The combined market in the West accounted Wollert and the Donnybrook Greenfield for 15% of total housing demand for markets have plenty of land supply for current Melbourne. Though total activity has fallen and future development. The Donnybrook in 2018, these Western sub-markets will market now accounts for 5% of total remain the new power house of Melbourne’s Melbourne housing demand while Epping/ greenfield markets going forward. Wollert responded to 3% of total housing demand. These two markets have strong levels Given the pace of development in the West, of competition and a good supply pipeline. there is a real risk this market will develop The healthy supply and competition levels ahead of infrastructure delivery leaving will mean that the current over-pricing of the communities without essential services and market is likely to correct quickly. amenities.

The new front line for greenfield land development is clearly to the West of Melbourne. Until recently, there were clearly segmented markets in Brimbank, Melton Township, Point Cook and Hoppers Crossing. However, these areas have merged into a single Melton market, which includes Rockbank and a sprawling South West market.

Greenfield Summary Table

Source: Research4

43

MELBOURNE MULTI-UNIT|INFILL ANALYSIS Melbourne’s apartment market performs second half of FY17/18 due to a range of a crucial role in providing new dwelling policy and regulatory changes impacting both supply in Melbourne. It provides dwellings supply and demand. for purchase at a price point that falls within the definition of affordable housing, while In terms of supply, there are still a high providing rental stock for those transitioning number of dwelling completions coming onto to purchasing a dwelling, for those requiring the market in FY18/19 and FY19/20 on the affordable rental stock, and those wishing to back of strong activity in the previous two live in areas of high amenity. financial years. However, there is a growing issue with the settlement of dwellings Apartment living is a maturing form of purchased off-the-plan due to a range of housing for Melbourne. Whilst increasing factors, including the tightening of finance numbers of owner-occupiers are purchasing lending standards over the past two years. apartments, investors still represent approximately 50-60% of the market. There are also an increasing number of projects with planning approval that are not In recent years investors have been vital progressing to the building approval stage to ensuring the viability of apartment due to insufficient pre-sales and difficulty in developments and supporting this product obtaining project finance. The most recent for owner-occupiers. However, a range of data reveals a significant decline in building policy and regulatory changes since 2016 approvals which is an indication of the has created significant disincentives for pipeline of dwelling supply in the coming two investors. We are now seeing the results of to three years. these policies as investors retreat from buying apartments, which has directly impacted in Of interest is the downturn in building the number of projects able to transition from approvals in FY18-19 compared with FY17-18 the planning permit stage to construction. for the apartment market in the inner city which has, until recently, been a key location The previous financial year was defined by for apartment projects. two clear trends: a strong first half of FY17/18 driven by historically high population and The data released for the financial year to employment growth, followed by a weak date (up to and including November 2018) Multi-Unit Summary Table

Source: CoreLogic

44 Brighton Lakes by Mirvac MULTI-UNIT|INFILL ANALYSIS Median New Unit Price & Annual Unit Completions

Source: CoreLogic

shows, for example, 301 new dwellings 1,284 for the previous financial year. These received building approval in the City of represent 10% and 27% respectively. Melbourne local government area (LGA) compared with a total of 7,360 building Whilst we consider this to be the result of approvals for the financial year 17-18. This a number of factors, including uncertainty represents 4% of the total building approvals regarding planning controls in the City of of the previous financial year in this LGA and Melbourne and the City of Port Phillip, a is a clear indication of the sharp decline in the retreat in the investor market, restrictions number of apartment projects moving from on access to finance, and an increase in the concept stage to building commencement. provision of apartments in the middle ring of Melbourne, these figures are of significant Similarly, building approvals for dwellings in concern and indicate a weak pipeline of the City of Yarra and the City of Port Phillip dwelling supply in the coming two to three are low as a proportion of the overall activity years. in the previous financial year. The City of Yarra recorded 228 building approvals to November 2018 compared with 2,209 for the financial year 2017-2018, and the City of Port Phillip recorded 352 approvals against a total of

45 Multi-Unit Completions 2018, by Postcode

Source: CoreLogic

BROADER MARKET TRENDS

Overall, the fundamentals of the residential Future threats to the sector include weak development sector remain strong. Victoria purchasing power due to low wage growth, is experiencing continued population and the increasing cost of living, and a reduction employment growth which is reflected in in the availability and volume of finance the high employment to population ratio for purchasers and the significant retreat of 62.4%. These are both supporting strong of investors from both the greenfield and underlying demand. apartment markets. These threats are combined with an unstable regulatory Based on population numbers alone, environment including uncertainty associated underlying demand for all housing types is with the impacts of the Financial Services currently estimated to be 3,685 dwellings Royal Commission. per month for metropolitan Melbourne. The forecast is for total housing demand [all types of housing stock] to average 3,360 dwellings per month.

46 Newport Women's Housing by Buildcorp Commercial MELBOURNE STATE POLICY ENVIRONMENT Wide ranging changes to policy and regulation 5. Removal of the stamp duty concessions since April 2016 have directly impacted on for investors purchasing dwellings off-the- confidence in the Melbourne housing and plan by the Victorian Government. urban development markets and the ability of Australian and international buyers to acquire 6. Introduction and increase of stamp either project or retail finance for residential duty and land tax surcharges on foreign products. purchasers of Victorian residential property. These changes include the following: 7. Introduction of the Annual Vacancy Fee 1. Restriction of lending to foreign property for foreign investors by the Victorian and buyers without a domestic income by Federal governments. Australian banks. 8. The introduction of a New Dwelling 2. Banks adopting stricter lending Exemption Certificate, and a 50% cap on policies which has reduced the level of the sale of new apartments to foreign construction funding available to the investors which was introduced in the industry. 2017 Federal Budget.

3. The Australian Prudential Regulation 9. Decreased height allowances and Authority’s (APRA) introduction of strict constraining built form controls limits on interest-only loans with a loan- introduced through the Melbourne to-value ratio above 80% in addition to Planning Scheme Amendment C270 in strong scrutiny of interest-only lending for November 2016. loan-to-value ratios above 90%. This has primarily impacted investment loans as 10. Uncertainty regarding the planning these are more commonly interest-only controls, planning processes and loans. government investment in Melbourne’s urban renewal precincts including the 4. APRA issued instructions to Authorised Fishermans Bend Urban Renewal Area. Deposit-taking Institutions to limit their exposure to interest-only loans to 30% of new residential loans (this was removed in December 2018).

47 MELBOURNE STATE POLICY ENVIRONMENT

Timeline of Regulatory Changes

Tightening of Finance Lending Standards The tightening of finance lending standards has had a direct impact on purchasing power. In March 2018, APRA provided a submission to the Financial Services Royal Commission that recommended that Australia’s major banks focus more closely on living expenses for borrowers. APRA’s concerns focused on the Household Expenditure Measure (HEM).

The ‘basic’ level of HEM has been commonly adopted by banks, which APRA considered to be a low estimate of living expenses. In adopting the low living expenses, banks risk significant under- estimation of living expenses.

“The Melbourne residential market continues to deliver record numbers of new dwellings, however there is growing concern about the impact of the fallout from the Financial services Royal Commission and the tightening of credit for projects and home loans. Looking forward, Melbourne is facing a range of challenges which are the result of a combination of policy and regulatory changes at both Federal and State level. Deliberate measures introduced to discourage investors have had a significant impact on future supply in the apartment market, meanwhile the greenfield market is constrained by delays to planning permits and the delivery of infrastructure. Despite this, the fundamentals are solid and there is strong underlying demand generated by continued population and employment growth. We are confident the market will bounce back if reform is focused on facilitating the delivery of homes, Jack Hoffmann infrastructure and services our communities need.” GM – VIC & QLD, Satterley

48 49 Upper Point Cook by Satterley Property Group

ADELAIDE SUMMARY In 2018 Adelaide’s greenfield market continued its characteristically steady growth. The ongoing challenge of low population growth continues to influence this moderate growth; however, the overseas component of population growth saw a 4% improvement in 2018 which is likely to continue progressively improving over the next 2-3 years.

Data suggest there has been a slight reduction in the previously stronger growth in infill development across established suburbs of Adelaide. Regardless, the longer-term infill trend continues even with CBD apartment stamp duty incentives expiring on 30th June 2018.

GREENFIELD MARKET ANALYSIS

The performance of the greenfield market for the 2018 year can be described as one of steady improvement. Total net lot sales at the end of 2017 were 158 per month; just below the long running average of 162 per month. The first quarter of 2018 saw total activity increase to 173 and then peak in September 2018 with 228 lot sales per month. The year ended with a very solid 211 lots per month being allocated to builders and or end users. Since 2008, the best the market has achieved has been 256 per month. The September 2018 result represented the third highest sale rate for the market since 2008.

In terms of total housing demand for metropolitan Adelaide, traditionally [2008 through to 2018] the Adelaide land market has supplied 4 out of every 10 homes needed. In the last few years, the greenfield market has been responding to 6.3 out of every 10 dwellings needed. The increase in the percent of total housing demand addressed through new land was in part driven by total housing demand contracting over the past 2 years relative to the long-term demand i.e. the land market has not increased, rather the level of total demand has reduced.

Looking forward, the 2019 year is modelled to see total housing demand increase from 331 per month to 386 per month. The modelled uplift in demand is driven by a solid improvement in Net Interstate Migration numbers (NIM); albeit NIM is still negative, the trend is positive. Net Overseas Migration numbers posted an improvement on the year prior.

The role of greenfield in responding to expected total housing demand of 386 per month is expected to fall back from 63% to 53% of total housing demand i.e. the new land market is

50 Bohem by Starfish Developments

ADELAIDE SUMMARY expected to sell 5.3 homes for every 10 needed A leading indicator for the strength of demand for metropolitan Adelaide over the coming is the cancellation rate; number of lots that year. This results in a modelled underlying were previously noted as being sold, is now demand for new land of 212 lots per month for listed back with the Developer. The Adelaide the entire Adelaide market. market as a whole tends to have a higher than normal cancellation rate. This is due in part The lift in activity for the 2018 year was in to the very competitive nature of the market part assisted by an increase in the number of setting and also the scale of the market. Based active trading estates. There were 87 estates on history a cancellation rate of 15-20% is under survey as at the close of 2018 compared normal for this market; not ideal, but it would with 62 at the close of 2017. Of the 87 active appear that the Adelaide greenfield market has estates, 71 posted sales in Q4-2018. become used to this level of cancellation.

The lift in active estates under survey has Over 2018 the level of stock ready for sale has resulted in an overall increase in production posted some small gains. Stock ready as at the capacity. The combined Greenfield capacity for close of the 2018 year was equal to 6 months’ Adelaide is now modelled to be 689 lots per worth of trading. The market has been tracking month. Development capacity is defined as the close to this number for the past 8 quarters. upper limit of an estates ability to produce new Ideally, stock ready for sale should be closer land. It is important for production capacity to 4 months in order to stimulate modest to exceed underlying demand by at least a price growth, however remaining at or below factor 2 to 1; to ensure market stability. The 6 months provides purchasers with a very Capacity to Demand ratio, going forward, is competitively priced product. expected to be 3:1; meaning that land estates will experience high levels of competition while When it comes to land prices, Adelaide’s price growth remains low. current median land price is $180,000 per block. Prices lifted over the 2018 year by 5.9%.

Annual Greenfield Activity

Source: Research4

51 Land prices are always linked to the price opportunity to lift land prices over the coming movement in the established housing market. year; however the higher than normal level According to the latest ABS data on house of competition will slow any price growth. prices for metro Adelaide, the median house Over the long term, land prices have averaged price was $459,000. 39% of the median house price for Adelaide. Currently the ratio is 38%. The outlook for house price growth in 2019 is for +0.5% improvement per quarter. This expected price increase will provide

Greenfield Sub-Markets The performance of the Adelaide land market year. The Barossa and Gawler sub-market is is now equally divided between Adelaide Hills currently selling at $154,000, which equates to and North Adelaide. The 2018 year saw these a 2% decrease from last year per lot. two markets post sale rates averaging 73 and 80 lots per month. For the first time, it seems Lot sizes remain steady at 440sqm for Southern Adelaide now has two major Greenfield fronts Adelaide, 470sqm in the Adelaide Hills and which will strengthen the overall brand. The the smallest lot sizes occurring in Northern Southern Adelaide submarket is currently Adelaide at 375sqm. Lot size in the Barossa/ selling 25 lots per month while the Barossa Gawler market remains large at 550sqm and and Gawler sub-market is averaging 30 lots per generally, the market appears to be using its lot month, up from its average last year of 20 per size reduction to drop prices. month. Current industry capacity, or the number of In terms of average land prices per block projects selling include 11 projects active in of land, North Adelaide has increased from Southern Adelaide, 14 in the Adelaide Hills (up $150,000 in 2017 to $164,000 in 2018, while from only 7 projects two years previous) and the Adelaide Hills has remained strong at 20-23 projects in Northern Adelaide. $195,000 (down from $198,000 last year). The most expensive market is Southern Adelaide at $205,000 per block, up from $183,000 last

Median Lot Price, Land Price ($/sqm) and Median Lot Size

Source: Research4

52 ADELAIDE Greenfield Summary Table

Source: Research4

OUTLOOK The outlook for the Adelaide Greenfield market nation’s most affordable land market. is for improved trading conditions. The market is well or better placed than other major The Adelaide market is likely to continue to Greenfield markets to weather the fallout benefit from the performance of the Adelaide from the Financial Services Royal Commission. Hills Greenfield market. Mount Barker With land prices that are 45% lower than and surrounds is diversifying the Adelaide Melbourne, gaining finance to borrow will be Greenfield brand which will only add greater easier in Adelaide. Some small improvement in choice and enhance the sectors desirability. population inflows with a modest increase in This factor cannot be overstated as the success established house prices should help to keep of any major metro land market is strongly sales activity above 200 per month. linked to clearly demarked growth zones with unique characteristics. The industry will continue to experience strong levels of inter estate competition; especially in the North Adelaide sub market. The Adelaide market has theoretically too many estates relative to underlying demand, meaning that price growth will be subdued. From a customer’s point of view this will be seen as a positive and ensure Adelaide remains the

53

ADELAIDE MULTI-UNIT|INFILL ANALYSIS There was a total of 1,876 multi-unit Central Adelaide recorded the highest level completions across Greater Adelaide in 2018 of completions with 633 across 2018. Within reflecting a 43% uplift on the average annual Adelaide City specifically, this reflects an overall volume of completions achieved across the increase in total unit supply of 7.3%. Given that 2012 – 2017 period. Generally, there is a the Adelaide CBD forms the largest component consumer trend in all development towards for the supply of units, the expiration and more compact living which reflects its non-renewal of stamp duty concessions for affordability and lifestyle choice. apartments has had the biggest impact in the CBD. Median pricing of new units remained flat in 2018 at $365,000. The multi-unit sector While the number of overall number of experienced median weekly rental growth of completions rose in 2018 (with a spike before 3.2% across 2018 across Greater Adelaide to expiration) the overall level is expected to finish the year at $320 per week cementing drop in 2019. We have seen no change in the Adelaide as the most affordable median rental overall supply of units as a percentage of total price point across Australia’s major capital dwellings across Greater Adelaide. In 2018, cities. new units represented 16.5% of new dwelling supply.

Multi-Unit Summary Table

Source: CoreLogic

54 WEST Stage 1 by Commercial & General MULTI-UNIT|INFILL ANALYSIS Median New Unit Price & Annual Unit Completions

Source: CoreLogic

Multi-Unit Completions 2018, by Postcode

Source: CoreLogic

Source: CoreLogic

55

ADELAIDE STATE POLICY ENVIRONMENT

The 2018 State Election meant a period of The State Government has continued to adjustment both economically and politically roll out a number of significant elements to as the new Liberal State Government settled the planning reforms occurring in SA, the in. In July 2018, the state government chose full impact of which is not yet known. Aside not to continue stamp duty concessions on from a new set of State Planning Policies, off-the-plan apartments which expired on the government is now revealing in a 3-stage 30th June. This has resulted in a decline in the process the State Planning and Design Code, number of CBD apartment purchases in the which will ultimately codify every planning last half of 2018. rule and regulation across the various planning zones in South Australia. Adelaide City Council introduced a rebate for five-years free on council rates for The State Planning Commission is also in the owner-occupiers of off-the plan and newly process of developing a Metropolitan Growth redeveloped apartments in the CBD to Management Program, which is a positive stimulate inner-city growth. This opportunity strategic initiative. expires in June 2019, but it is not expected to impact the market after a low take up rate.

“The Adelaide Greenfield market remains steady despite the fallout from the Banking Royal Commission and generally weaker conditions across other parts of Australia. New land estates in Adelaide remain affordable and the market is characterised by a diverse offering in terms of new estates, product types, and location. The outlook for the market is one of optimism with stronger prospects for job and population growth over future years.”

Jason Green Managing Director, Lanser

56 57 Virginia Grove by Lanser

PERTH SUMMARY Despite the tightening of bank lending criteria, the second and third quarters of 2018 saw consecutive growth in Perth lot sales reflecting the improving state economy and increasing consumer confidence. However the year closed with sales falling significantly in the final quarter, dampening the earlier signs of recovery. This fall was driven by negative sentiment surrounding the Financial Services Royal Commission, media coverage of softening markets on the east coast and possible amendments to negative gearing and capital gains taxation regimes following the 2019 Federal Election. As a result, lots sales within the State of the Land sample survey averaged 401 per month across 2018, 15.6% lower than average monthly sales in 2017.

Low population growth continues to be drag on lot sales, however the signs suggest this is turning with annual population growth lifting to 0.8% in June 2018, driven by a decline in the number of persons moving to the eastern states. The number of employed persons has been lifting, with almost 9,000 jobs added to the economy over the course of 2018, however the State’s unemployment rate increased to 6.2% (in original terms) in December 2018, slightly above the five-year average of 5.8%.

WA’s economic outlook is looking brighter with strong investment by the resource sector in particular. UDIA WA recently analysed the length of historical property market cycles and tracked this against resource industry investment. Whilst the current downturn has extended for longer than many might have expected, it sits well within the average time range of historical market cycles. Encouragingly, the study uncovered a distinct two year lag between upturns in mineral exploration expenditure and uplifts in dwelling commencement figures. Based on this evidence and the current heightened mineral exploration expenditure, we would estimate the next property market upswing is likely to occur with the next 12 to 18 months. GREENFIELD MARKET ANALYSIS WA lot sales activity in 2018 slowed 15.6% from 475 the previous year to average 401 sales per month over the course of 2018. However, much of this decline was driven by a significant fall in sales in the final quarter of 2018, dampening the earlier signs of recovery which saw positive growth in lot sales in the second and third quarters. The fall in the December quarter sales was driven by negative purchaser sentiment following media coverage of softening east coast

58 The Cove by Blackburne

PERTH SUMMARY property markets, the Financial Services Royal WA having the smallest median lot size in the Commission and possible amendments to the country for five and a half years running. The negative gearing and capital gains tax regimes next smallest lot size for December 2018 was arising from the forthcoming Federal election. in Victoria at 400sqm. There is some evidence to suggest that the market would benefit from Lot prices remained steady over 2018, with the some greater diversity; with estates containing median lot price down 0.9% year on year to a greater mix of lot sizes tending to perform a sit at $224,000 in December 2018, remaining little better. consistent with the long-term average; with a median lot to median house price ratio of 45%. Reduced lot construction activity had helped Given this close relationship, any moves in the to reduce stock levels to 7.6 months’ worth median lot price is likely to be dictated by the of supply in September, however this lifted to performance of the established housing sector. 10.4 months following weak sales in the final quarter. The median lot size, at 375sqm, has remained unchanged since the first quarter of 2016, with

Annual Greenfield Activity

Source: Research4

59 Median Lot Price, Land Price ($/sqm) and Median Lot Size

Source: Research4

Greenfield Summary Table

Source: Research4

60 Yagan Square by Metropolitan Redevelopment Authority PERTH

MULTI-UNIT|INFILL ANALYSIS Following a peak of activity in 2017, multi- from Perth’s CBD) median values averaged unit completions in the Greater Perth region $298,494. slowed 14% to sit at 2,910 for 2018, well below the long-term multi-unit completions In 2018, median weekly rental rates for Perth average of 3,930 (2012-18). This decline fell 2.9% to $340, driven by a relatively high was driven by the same factors contributing vacancy rate of 7.4% amongst multi-units. to weak demand in the greenfield housing However, with the broader rental vacancy market with low population growth and rate dropping to 2.9%, developer sentiment declining confidence in the housing market is improving; with the number of units amongst purchasers. scheduled for completion in Greater Perth in 2019 expected to increase 34% to total The median value of units in 2018 fell 5.7% to 5,436, with 2,713 of these units expected to sit at $393,825 for Greater Perth, reflecting be completed in the first six months of 2019. the competitive prices in the established and It is anticipated almost 60% of the supply of greenfield housing markets. However, there multiple-unit dwellings will be located within are signs of a two speed market emerging 10km of Perth’s CBD and in particular in the with premium market areas such as Cottesloe, centrally located suburbs of Perth, East Perth Claremont and North Fremantle performing and South Perth. Looking further ahead all well with median prices around $700,000 eyes will be on the State Government for driven by strong demand amongst ‘baby announcements regarding the development boomers’ in particular. Meanwhile, sales of the ‘METRONET’ precincts and the activity remained subdued in more affordable expansion of Perth’s rail network. areas such as Rockingham and Mandurah. In the outer metropolitan areas (beyond 20km Multi-Unit Summary Table

Source: CoreLogic

61

PERTH Median New Unit Price & Annual Unit Completions

Source: CoreLogic

Multi-Unit Completions 2018, by Postcode

Source: CoreLogic

62 BROADER MARKET TRENDS Although population growth remains below sales. This evidence indicates that the next the national rate of 1.6%, in June, the WA property market upswing is likely to occur population growth rate stood at 0.8%, up over the next 12-18 months. from 0.6% per annum between June 2016 and March 2017. Driving the improving population Despite the improving broader economy, the growth has been a lower level of negative property market continues to face headwinds interstate migration. In the year to June 2017, in 2018. The tightening of lending criteria 13,934 WA residents moved to the eastern by the banking sector, coupled with recent states, with this falling to 11,300 in the year rate increases in the retail mortgage sector to June 2018. Additionally, WA’s share of and lower property valuations, continues to overseas migration has been increasing, with make accessing the housing market difficult, 5.6% of overseas migrants moving to WA in particularly for those on low to moderate the 6 months prior to June 2018, up from incomes. As a result, First Home Buyers (FHB) 4.9% in 2016, although this is still a long way have been particularly hard-hit, with WA short of the 21% experienced in 2012. finance commitments for owner-occupier FHBs (excluding refinancing) falling 13% to Supporting the rising population growth rate 27,294 for the year, as compared to 31,460 in is an improving economy and more positive 2017. economic outlook. Over the course of 2018, 8,800 jobs were added to the economy, with Lending to households for investment a large proportion of this growth in the health dwellings (excluding refinancing) similarly sector. Job creation figures continued to slowed, falling 25% in 2018 to $3.212 rise throughout the year with a 44% annual billion, following a 9% decline in 2017. As a increase in the number of WA job vacancies, result, house sales are down with sales in which lifted to sit at 28,600 in November the September quarter down some 8% on 2018. Whilst the unemployment rate has the previous year. However, house prices lifted in recent months, strong job vacancy appear to have stabilised with the median data suggests that population growth may be house price down 1% year on year, sitting at behind this increase, offering further signs of $495,000 in December, up from $485,000 in encouragement. September.

Mineral exploration expenditure has been Reflecting these trends, WA building sustaining positive year-on-year increases for approvals for houses slowed 10% to 12,773, nearly three years now. Over the course of the as compared to 14,285 in 2017. Building 2017/18 financial year some $1.204 billion approvals for dwellings (excluding houses) fell has been invested on exploration activities, 34% to sit at 3,486, down from 5,290 in 2017. whilst the investment in the September 2018 quarter was up some 23% year on year. There are positive signs in the rental market Increasing mineral prices are likely to support for Greater Perth which is experiencing further investment, with iron prices in January increasing demand. In the final quarter of up 7% above the twelve-month price average 2018, median house rents increased 1.4% for 2018. UDIA WA recently analysed mineral from December 2017 to $360 per week. This exploration investment against residential has been driven by a falling rental vacancy property cycles, noting a distinct two year lag rate, down to 3%, the lowest rate since March between this investment and increased lot 2013. Increasing demand is likely to place further pressure on rental prices which will in turn, support demand amongst purchasers.

63

PERTH STATE POLICY ENVIRONMENT All eyes will be on the result of the first for completion in 2021. We anticipate that quarter of 2019 to ascertain the impact announcements regarding the METRONET of the Foreign Buyers’ Surcharge in WA, precincts will emerge in the next few months. which came into effect on 1st January 2019. Much of these details will no doubt be linked Similarly, following its release in February, the to a revised Development Contributions State true impact of the Design WA State Planning Planning Policy (SPP). Policy (SPP) suite including the Apartment Design Guide will emerge in the second half With this in mind, UDIA WA is hopeful of the year. UDIA will be monitoring the that clarity on the status of the State impact of these new requirements closely Government’s planning reform agenda in order to highlight the impact of any will begin to emerge; as will solutions unintended consequences and ensure that to remedy the lack of reporting by local the Government takes appropriate action. governments on development contributions and the implementation of the State’s coastal More encouragingly, the Strata Title Reform hazards SPP. Much of the Government’s Program is gathering momentum following focus surrounding emerging state planning the passing of the Strata Titles Amendment policy is likely to focus on design with the Act and Community Titles Act in 2018. It is advancement of a precinct planning policy anticipated that the Strata Titles Regulations and medium density housing code. will give commencement to the Act in the second half of the year whilst the Community Similarly, UDIA WA is optimistic that clarity Titles Regulations are likely to come into effect regarding the environmental approvals in the first quarter of 2020. process will emerge, with the Independent Review of the Strategic Assessment of the UDIA WA also recently welcomed the Perth and Peel Regions currently with the announcement of Infrastructure WA to set Government for consideration. Close attention out an infrastructure strategy, based on an will also be given to potential amendments evidence-based assessment of the State’s to the environment approvals regime should needs. With regards to infrastructure delivery, there be a change in Government following the State Government’s flagship METRONET the 2019 Federal Election. program is likely to gather further pace this year; with construction set to begin on the Yanchep Rail extension and Thornlie-Cockburn Link and the Forrestfield-Airport Link set

"Market fundamentals point to more positive times ahead, however consumer confidence needs to improve further before we see a clear lift in sales numbers. The industry anticipates that the retail banking sector will begin to relax its cautious lending restrictions which is leading to some pent-up demand. This can be seen by the rental vacancy rate dropping to 2.9%. Commentary regarding the RBA’s official cash rate is that the next move will be down. This would be warmly welcomed and one of the few occasions where national monetary policy is aligned with WA market conditions. Whilst these positive outcomes are tempered by potential changes to negative gearing and capital gains taxation policy, the signs point towards improving marketing conditions particularly in the second half of 2019." Nick Allingame Director, Pindan Developments

64 20 65 Evermore Apartments by Yolk Property Group

ACT SUMMARY The performance of the ACT residential market continues to be aided by low unemployment (the lowest in the country), moderately strong jobs growth, and robust population growth with migration trending higher.

Aided by wage growth in the public sector being consistently stronger than the private sector, Canberra has the highest median household incomes of the capital cities (circa $2,250 per week). This helps underpin Canberra holding the nation’s best 2018 housing affordability – as measured by median house price to median income, with a ratio of 5.1 (as at June 2018).

In aggregate terms the ACT housing market performance in 2018 is best described as ‘mixed’ with a relatively robust year for the greenfield housing estates balanced by a softer year for the multi-unit sector.

While underlying demand for new housing remains strong across the ACT it is expected that short-term demand will likely soften due to uncertainty created by the forthcoming Federal election. GREENFIELD MARKET ANALYSIS The ACT greenfield land market plays a critically important role in providing new housing supply to address underlying demand. Across the 2013 to 2018 period the new land market has satisfied an average of 47% of the total net private dwelling gain.

Over the past year the ACT market, which includes the Googong development at Queanbeyan, has averaged 66 sales per month which reflects a 59% increase on 2017 output, but is well below the 136 sales per month which was averaged across the 2009-2013 period.

A major reason for the lower than average sale rate relates to the lower number of active residential estates (estates which posted sales activity each quarter). Over the past ten years the ACT market has averaged just five trading estates at any point in time; with a peak of 9 trading estates in the middle of year 2010. Over the 2018 year there was an average of 4 trading estates.

66 Brighton Lakes by Mirvac

ACT SUMMARY Annual Greenfield Activity

Source: Research4

Median Lot Price, Land Price ($/sqm) and Median Lot Size

Source: Research4

67 When it comes to land prices the ACT new The current ACT median lot size of 493 sqm land market has experienced a sharp jump represents the largest lot size across the in the median lot price at the beginning of capital city markets, with the second largest 2017. This level has been relatively steady median lot sizes available in SEQ being up until the last quarter of 2018. The median 10% smaller at 445 sqm. The increase in lot price between the June 2017 quarter and retail lot price has driven the average land the June quarter 2018 was $470,000. In the price to $872 per sqm which represents last quarter of 2018, the median lot price has the second most expensive lot price after fallen to $430,000. This is still far above the Sydney. Interestingly, Melbourne appears to 10 year median price of $276,000. be coming close to ACT's average land price with land valued at $862 per sqm, up 25% on Since 2008, new land prices have averaged figures reported last year. 66% of the median ACT house price. Currently the median lot price of $430,000 is estimated In 2018, the ACT new land market has seen to be 61% of the median ACT house price of slow positive growth as a result of more $700,000 (CoreLogic). From these statistics, it trading stock and trading estates relative to appears that the “overvalued” median price the suppressed stock activity in 2017. point (relative to its long running average) in 2017 has corrected in 2018.

Stock of lots ready for sale recorded by the Research4 has picked up since the low 2017 year. This uptick in stock has allowed sales activity to increase in the 2018 year.

Greenfield Summary table

Source: Research4

68 WEST Stage 1 by Commercial & General

ACT

MULTI-UNIT|INFILL ANALYSIS

The ACT recorded a contraction in multi-unit The median multi-unit rental asking price production in 2018 relative to 2017, with a across ACT was $450 per week for 2018 total of 2,668 completions. This reflects a which reflected a growth of 5.9% on the 2017 42% annual drop in stock completed, but is median rental asking price. This placed the consistent with average volume of multi-unit ACT as the second most expensive rental completions recorded over the 2011 – 2017 market across the capital cities trailing only period. Sydney which recorded a median asking rent of $540 per week. The median price for new unit sales across 2018 decreased by 5% from 2017 to The ACT vacancy rate at December 2018 was $433,100. This decline in median pricing 2.1% which was the lowest in the country ends the momentum observable across the across the capital cities. The tight vacancy rate preceding two years. Of relevance is the reflects the ACT’s resilient population growth comparison to the median price for sales rate which continues to absorb new supply. of new detached housing which grew 4.5% The Capital’s growing student population is an across 2018 to $700,000. Evidently weaker important component of the on-going rental demand for new multi-unit stock across the demand profile ACT did not extend to the new detached housing sector in 2018.

Multi-Unit Summary Table

Source: CoreLogic

69 ACT

Median New Unit Price & Annual Unit Completions

Source: CoreLogic

Multi-Unit Completions 2018, by Postcode

Source: CoreLogic

70 Oxley + Stirling by Aria Property Group BROADER MARKET TRENDS

The forthcoming Federal election is expected the loose-fill Asbestos Eradication Scheme) to further impact on demand in the short- with a number being completed across 2018. term, however the local development This has added to the supply of newly built community expects demand to stabilise in the medium density residential products across second half of 2019. Canberra. There are a total of approximately 1,000 Mr Fluffy sites, many of which are Canberra’s economic outlook remains positive now seeing the construction completion of at a macro scale, despite some near-term small townhouse developments by smaller challenges. Demand for new homes remains developers, investors and owner-occupiers. strong with the volume of new house construction increasing - in line with the Due to the recent imposts placed on foreign broadly rising detached home market. investors and Sydney’s decelerating market it has been noted that there has been The demand profile for multi-unit products an elevated level of interest from foreign weakened across 2018 - particularity for investors in Canberra. It is predicted that investor grade one-bedroom apartments in Canberra’s attractive entry prices will continue strongly supplied outer areas suburbs such as to strengthen investor demand over the Belconnen and Gungahlin. coming 12 months.

An interesting market dynamic relates to the ‘Mr Fluffy’ development sites (related to

"The ACT market continues to buck the trend of the declining Sydney and Melbourne markets and continues to grow with modest gains achieved, particularly for houses. Where good yields are on offer, investor sentiment is robust without being spectacular. ACT Stamp Duty concessions for first home buyers from 1 July 2019 will likely have a positive impact on capital growth, however as this concession applies to all sales, the impact on the off-the-plan market (which currently attracts a grant) may be negative. While buyer finance is the biggest issue facing most property purchasers, the fundamentals of the ACT economy remain strong with low unemployment, higher wages, low vacancy, and well as nation-leading population growth." Tom Cummins Director Development Program, DHA

71 Wivenhoe72 Village by Mbark Pty Ltd 73 Evermore Apartments by Yolk Property Group ABOUT UDIA THE URBAN DEVELOPMENT INSTITUTE OF AUSTRALIA (UDIA) IS THE PEAK BODY REPRESENTING THE URBAN DEVELOPMENT INDUSTRY IN AUSTRALIA.

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74 CONNIE KIRK

National Executive Director UDIA National [email protected]

KIRSTY STEVE MANN DANNI ADDISON CHESSHER-BROWN

Chief Executive Chief Executive Chief Executive Officer Officer Officer UDIA Queensland UDIA NSW UDIA Victoria kchessher-brown@ smann@udiansw. [email protected]. udiaqld.com.au com.au au

PAT GERACE TANYA STEINBECK GERARD ROSSE

Chief Executive Chief Executive Chief Executive Director Officer UDIA Northern UDIA South Australia UDIA Western Territory Australia geracep@udiasa. [email protected] com.au tsteinbeck@udiawa. com.au

75 2019

THE LAND

UDIA STATE OF

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